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Wednesday, January 19, 2011

Israel Corp Seeks Guarantees from Tamar on Future Gas Supplies

Platts, Jan 17, 2011
Israel Corporation Ltd has given the Tamar consortium until February 1 to guarantee that it can meet the holding company's timetable for supplying natural gas to its subsidiaries, according to Israel Corporation Ltd officials Monday.

The request came in the form of a letter to the partners in the Tamar consortium.

The Israel Corp. letter stated that if the Tamar consortium was unable to meet the timetable then the company would be free to sign agreements with other suppliers.

Israel Corp is expected to be the largest industrial consumer of natural gas in Israel and second only to the state owned Israel Electric Corp.

Last month, the holding company signed an agreement with East Mediterranean Gas Supply Corp., or EMG, for the initial supply of 1.4 billion cubic meters of gas from Egypt beginning in the second quarter of 2011. [See my post here -- D.R.]

The 20-year EMG contract is for supplies to three companies controlled by Israel Corp -- Oil Refineries Ltd, Israel Chemicals and OPC Rotem.

A senior Israel Corp. official said that a contract for an additional 1.5 Bcm/year of supplies could eventually go to the Tamar consortium, which comprises Noble Energy Inc, Delek Drilling, Avner Oil and Gas, Isramco and Dor Gas.

Israel Corp. CEO Nir Gilad made it clear that the holding company would prefer to buy from local producers. But Israel Corp. said at the time of the signing of the EMG contract that it also had an option until March 31 for an additional 1.5 Bcm/year in supplies from Egypt.

The Tamar consortium is hoping to commence deliveries of gas in 2013 but the development of the huge offshore field has been held up over the debate in Israel over a change in the tax regime for oil and gas exploration companies.

The companies charge that the proposed changes by a finance ministry-appointed committee earlier this month would make it difficult to raise the necessary funds for developing the field.

The committee headed by Professor Eitan Sheshinski recommended increasing the government take on oil and gas profits [i.e. the share of the state in the net profits -- D.R.] from the current level of less than 30% to 50 to 62%. In addition, the committee recommended a tax on profits ranging from 20% to a maximum of 50%, accelerated depreciation, a lower level of taxation be imposed on oil and gas fields that begin production by 2014, retaining the 12.5% royalty tax and the cancellation of the depletion allowance. The Israeli government is expected to decide in the coming weeks on the tax issue.

The agreement between the Israel Corp. and EMG was seen as a setback for the Tamar consortium, which was hoping to clinch the entire deal. ...

(Prime Minister Binyamin Netanyahu on Tuesday (Jan 18) said that he fully accepts the recommendations of the Sheshinski Committee. -- D.R.)